Nvidia (NVDA +5.56%) dominates the market for data center graphics processing units (GPUs), chips used to speed up demanding workloads like artificial intelligence (AI) applications. The Wall Street Journal recently reported that "Nvidia's chips underpin all of the most advanced AI systems, giving the company a market share estimated at more than 80%."
The company has been gaining steam since the launch of ChatGPT in November 2022. That event thrust generative AI into the spotlight and inspired unprecedented demand for AI hardware. Nvidia shares have surged 150% this year alone, accounting for nearly one-third of the gains in the S&P 500.
Somewhat surprisingly, history says Nvidia shareholders could make more money in the second half of 2024, even after triple-digit gains in the first half of the year. Read on to learn more.
NASDAQ: NVDA
Key Data Points
History says Nvidia could continue soaring in the second half of 2024
Nvidia became a public company in 1999. The chart below shows its share-price appreciation (or depreciation) in the first and second halves of each full year since its initial public offering (IPO). Nvidia has generally performed better in the second half of the year, as evidenced by the median values listed at the bottom of each column.
|
Year |
First-Half Return |
Second-Half Return |
|---|---|---|
|
2000 |
171% |
(48%) |
|
2001 |
183% |
44% |
|
2002 |
(74%) |
(33%) |
|
2003 |
99% |
1% |
|
2004 |
12% |
15% |
|
2005 |
13% |
37% |
|
2006 |
16% |
74% |
|
2007 |
12% |
24% |
|
2008 |
(45%) |
(57%) |
|
2009 |
40% |
65% |
|
2010 |
(45%) |
51% |
|
2011 |
3% |
36% |
|
2012 |
0% |
(11%) |
|
2013 |
15% |
14% |
|
2014 |
16% |
43% |
|
2015 |
0% |
64% |
|
2016 |
43% |
127% |
|
2017 |
35% |
34% |
|
2018 |
22% |
(44%) |
|
2019 |
23% |
43% |
|
2020 |
61% |
37% |
|
2021 |
53% |
47% |
|
2022 |
(48%) |
(4%) |
|
2023 |
190% |
17% |
|
Median |
15% |
36% |
Data source: YCharts.
Past performance is never a guarantee of future results, but we can use the information in the chart to make educated guesses about Nvidia's performance in the remaining months of 2024.
First, Nvidia has rarely followed an upbeat first half with a downbeat second half. Specifically, the stock has produced a positive first-half return in 18 years and a positive second-half return in 16 of those 18 years, or 89% of the time. In other words, history says Nvidia shareholders are likely to make money in the remaining months of 2024.
Second, Nvidia has returned a median of 36% during the second half of the year, more than doubling its median return in the first half. However, when gains have exceeded 100% in the first half of the year, the stock has returned a median of 17% in the second half. So history implies Nvidia shareholders could see a 17% return on their investments in the remaining months of 2024.
Unfortunately, analyzing Nvidia's past share-price appreciation is a poor method of predicting the future. It overlooks consequential variables like current financial results, valuation, and market sentiment. But Wall Street analysts have considered those variables and don't have a great view.
Wall Street analysts see very little upside for Nvidia shareholders
Among the 60 analysts who follow Nvidia, 90% rate the stock a buy and 10% rate the stock a hold. Not one currently recommends selling. However, the median 12-month price target of $127.50 per share implies just 3% upside from its current price of $124 per share.
Analysts have consistently revised their targets higher as Nvidia has crushed revenue and earnings estimates. But the company can only beat estimates so many times before the market expects that outcome -- and we may have reached that point already. Nvidia has beat revenue and earnings estimates by at least 6% and 10%, respectively, in four straight quarters.
That is particularly impressive, given that revenue and non-GAAP net income increased at a triple-digit pace in those quarters, as shown in the chart below.
Nvidia's revenue and non-GAAP net income have increased at a triple-digit pace for four consecutive quarters. (Note: The first quarter of fiscal 2025 ended in April 2024.)
Here's the bottom line: At some point, investors will be disappointed when Nvidia reports its financial results either because revenue and/or earnings beat estimates too modestly or those metrics miss estimates. When that day comes, shares will probably fall sharply, at least temporarily.
Even so, the bull case for Nvidia is straightforward. UBS analysts recently predicted that artificial intelligence will be "the most profound innovation and one of the largest investment opportunities in human history." Nvidia's graphics processing units are the gold standard in accelerating AI workloads. Analysts at Forrester Research recently wrote, "Without Nvidia GPUs, modern AI wouldn't be possible."
Wall Street analysts expect Nvidia to grow earnings per share at 33% annually over the next three to five years. That forecast makes its current valuation of 70 times earnings look fairly reasonable.
Nvidia may or may not be a profitable investment in the second half of 2024. From its current price, however, I think the stock can beat the market over the next three to five years.
